This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide.
After conducting a procurement audit of the City of Calgary’s procurement operations, the City Auditor released two reports, the first, Procurement Audit: Phase 1 – Governance in November 2009, and the second, Procurement Audit: Phase II – Systems and Processes in May 2010, both of which made a series of recommendations for updating the City’s procurement practices and establishing clearly understood roles and responsibilities across the organization.
As the City Auditor’s report noted, there was a lack of common understanding within the Calgary procurement department of procurement processes and procedures:
We interviewed a number of purchasing agents and buyers within Supply Management to clarify processes, determine the required approvals and assess the consistency of understanding and application given the lack of documented processes and current delegated signing authorities.
We concluded, based on these interviews, that there was a lack of a common understanding within Supply Management of processes and signing authorities. This has led to inconsistent application of the requirement to use competitive processes, use of RFPs when a tender may have been adequate and a high level of non-competitive procurement.
The City Auditor found a lack of broader organizational awareness of the role of the procurement department. It also found that the procurement policies and procedures were outdated and incomplete:
We found the necessary procurement framework had not been established to ensure The City’s procurement activities are effectively managed, monitored and controlled.
Our review found that, while some elements of effective program governance existed, it was piecemeal, dated and informal. There was no comprehensive, complete, accurate and authoritative repository available to employees with responsibilities for procurement. More specifically:
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Supply Management is not currently discharging all of the responsibilities of a central purchasing authority.
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Systems had not been established to effectively manage and control delegated signing authorities.
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Existing procurement policies and procedures have not been updated since 1993, even though new systems were implemented in 2001 and The City underwent organizational restructuring in 2006.
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Current administrative practices, which changed over time with implementation of new systems and organizational restructuring, are not aligned with existing policies and procedures.
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As a result, there is an increased risk of error and malfeasance from spending that circumvents established business rules and processes (i.e. dissident spending), and litigation from unfair and non-transparent processes.
Without the necessary procurement framework in place, there is no real assurance that The City’s procurement activities are always being conducted in a fair, open, and transparent manner, and whether procurement activities are cost effective. Furthermore, employees cannot be expected to follow established business rules and related procedures when they are out of date and not effectively communicated to all stakeholders.
In summary, the City Auditor found that while “some elements of effective program governance existed, it was piecemeal, dated and informal. There was no comprehensive, complete, accurate and authoritative repository available to employees with responsibilities for procurement.” The City Auditor noted that many procedures were followed through long-standing undocumented practices:
We reviewed The City’s procurement framework and, while we found some elements of effective program governance, we noted this guidance is provided through a number of documents and sources. In some instances, several versions of the same document were in use; in other instances, reference was made to long-standing practice for which no authority could be located and which was not consistently cited. The procurement framework is not available to staff through a single, integrated, authoritative source.
The City Auditor found that, rather than acting as central stewards of the procurement system, the procurement department had drifted into a reactive approach that focused on transactional issues:
Supply Management has acknowledged that in recent years it has mainly reacted to business unit requests and issues rather than acting proactively as a central purchasing authority. As a result, its role has primarily been limited to administering individual procurement processes. Supply Management considers business units as having the responsibility for ensuring the integrity of that procurement. This represents a significant weakening of internal controls as it concentrates incompatible functions in the hands of the business unit.
Although the existing model may have served The City well in the past, recent literature suggests this is no longer enough to ensure value-for-money in the use of public resources.
The report recommended that the role of the procurement department be clearly defined and updated in order to increase broader organizational awareness and increase the procurement department’s traction as a strategic corporate undertaking:
In essence, The City should be managing its procurement activities as a strategic corporate activity. The procurement framework should be reviewed and updated to address procurement from a corporate perspective. Specifically, the framework should:
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Define the role and responsibilities of Supply Management as the central purchasing authority. The model should articulate not only the service level and performance standards to be provided but also identify what the central authority will not do;
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Clearly assign the decision rights and responsibilities not assigned to the central authority to other stakeholders within The City;
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Establish service levels to substantiate resource requirements and performance indicators to demonstrate that value-for-money is being achieved through strategic procurement; and
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Ensure that the procurement framework is readily available to all employees through the Administration Policy Library.
To achieve this end, the City Auditor recommended that the city’s Chief Financial Officer implement “a comprehensive procurement framework.” The Calgary case study serves as a useful reminder of the need to approach procurement as a strategic corporate activity that requires proper co-ordination and integration across the entire institution.
